9 Steps to Building Out Your Commercial Space
So you need to make changes to a space….big changes (or small). Here are some quick tips on making that process smooth and what to look for. Remember, space buildout is often the most costly term in a lease, for both parties, so make darn sure you know the facts before signing on that dotted line. ..
For example, it can costs upwards of $65/PSF to finish a space from shell with standard building finishes in a construction budget. A Landlord initially may only quote $50 or $40 PSF and expect Tenants to make it up. Use the market knowledge gained here on Tenavox and with your representatives to make sure the Landlord is contributing a fair number. It is not uncommon for Tenants to contribute to their space construction but rent, TI and concessions (free rent periods, allowances) are all heavily intertwined.
Step One: Find out how much space you actually need. Consult a good space planner to give yourself a really good understanding of your employee space dynamics. These effects cost WAY more than rate, so know your space needs inside and out.
Step Two: Know your space type. Assuming you have found some spaces you like, you need to assess what type of space you’re looking at (Shell or 2nd Generation).
Shell space: This is space that has never been built out. It is usually a cold, dark, shell. Meaning nothing is in from HVAC, electrical to walls and paint. It is a blank canvas.
Second generation: I say second, it could be tenth generation. Basically this means space that does have improvements already built out. It should have walls, electrical, HVAC and cabling already included. This is space you want to make changes to but not build from scratch.
Now that we know what type of space we’re looking at we can start to understand the next steps with Plans, Cost and Timing.
Step Three: Plan for the space. Engage the services of a space planning professional. Architects that focus on interior commercial build-outs are key. Your cousin who has an eye for drapes is not appropriate. Landlord’s often provide one free space planning session. If not, I recommend paying for one. Costs run $.10-.15 PSF for a space plan. Have a good understanding of how you want your space to function, the flow, and whether you have room for all employees now and during the lease term. If not, time to look at bigger space (or smaller) and do another plan. The space works for you...not the other way around.
Step Four: Develop a wishlist for improvements. Get bids for the work you want to have completed, which is often provided by Landlords or their reps/contractors. You should expect to see no less than three (3) competitive bids in a matrix fashion breaking down the line items and costs for the work. While the Landlord has ultimate control over who does the work, cost negotiations are fair game. If they are not providing bids, that’s a red flag.
Step Five: Determine timeframe. With a good understanding of size needs, a solid space plan and three competitive bids it’s time to talk about time.
Shell conditions can take upwards of 180 days to build out. They include permitting, planning and extensive construction drawings depending on your local municipality. If you want one wall moved and some paint/carpet, your build out could be 15 days and require no permit. Now is the time to force the contractors to give you a construction timeline. If they cannot, move on from them.
Step Six: Make adjustment to plans as needed. Make sure the costs reflect your needs! As you move through the process, you may make changes, reduce costs, ask questions, figure out who is paying for cabling and data needs (usually not included in a bid). Tighten up the bids and finalize them. Is the Landlord providing an allowance here? Will they turnkey the space?
Note: Turnkey refers to a buildout where the Landlord agrees to build a space to fit an attached space plan to the Lease and incur all costs. This is a simpler way to do things but less transparent. The Landlord could potentially save money in the bids and deliver the space more cheaply, thus pocketing the difference. It’s better to just know the costs and the allowance given, and make sure they match. If you change things AFTER the lease is signed, that’s gonna be on you to pay.
Step Seven: Finalize the buildout plans. Agree and attach the final bid, timeline and construction documentation (legal riders) to the Lease itself. This should not be up in the air or confusing. If you make zero changes to these plans after the fact the costs should not change and you should be able to budget for any overages you’re responsible for now. No surprises.
Step Eight: Build out. You should receive regular updates on the construction and if any approvals are needed on your part you will receive documentation and signatures required. Again, no surprises here. If things are taking longer, lean on your property manager and construction manager. If things are getting out of hand hopefully you’ve taken our advice in lease negotiations and have recourse for space that isn’t delivered timely or correctly. See our section on Lease Negotiations for more on this.
Step Nine: Punchlist and occupy. You should receive a walk through with a punch list. Clean up anything that needs fixing and then sign off. This is your last chance - once you sign the acceptance of premises it’s all on you. At this point if there are any overages you will be putting up your side of them.
Quick note on payments and timing: If you choose to use your own contractor you will likely be responsible for payments, deposits and timing of these within your lease documentation. It’s a big responsibility. You will need to pay on time and in full, after the completion of the work the Landlord will then reimburse you for allowances. You’ll also need your contractor to be fully licensed, bonded and to execute lien waivers for most professional Landlords. They are not going to let you have them hold the bag for not paying your contractors. It will put you in immediate monetary default and jeopardize your lease. Know what you’re getting into by managing your own construction. Our recommendation? It’s their building, use the steps above and let them take the headache (and responsibility) of construction. You’ve got a business to run.
Find out more on building out space and much more in our handy leasing guides at www.tenavox.com
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